Updated on 12.29.06

Ten Ways To Accelerate Your Net Worth Growth

Trent Hamm

Now that you’ve calculated our net worth, you’re probably excited about seeing that number go up, and once it starts going up, you’re going to want to see it keep going up, faster and faster, rocketing to the moon. For my net worth growth, I have a thumbnail goal of a 2% increase per month in the coming year, which amounts to a 29.4% increase over the course of the year.

Here are the ten methods I plan to use to increase the velocity of my net worth growth. I recommend focusing for a while on each item before moving onto the next one.

1. Pay off all debts, starting with high interest ones
I started doing this during the past year by paying off all of my credit cards and eliminating my truck loan. Right now, I’m focusing in on the smaller of my two student loans, which I hope to wipe away by mid-2007.

2. Maximize employee matching of retirement investments
You should claim every single extra dollar that your employer offers you as a matching amount in your retirement account. If you don’t, you’re basically telling your employer to keep part of your salary and actively choosing to stunt your net worth growth.

3. Max out a Roth IRA
A Roth IRA is an unbelievably good way to shelter some money for retirement. You can contribute up to $4,000 a year, you can withdraw what you contributed at any time, and when you retire, you can withdraw your earnings tax free. It’s a complete gravy train.

4. Trim expenses
The key here is to eliminate “bad” expenses: ones that don’t do anything to increase your net worth. For example, dining out is almost always a bad expense, as is extra clothes shopping and almost every electronics purchase. Cut out these extra expenses from your life and suddenly the margin between your income and your expenditures becomes a whole lot fatter. That margin is your net worth growth, and you just made it bigger.

5. Keep money you’re not spending in a place where it earns
Your savings account should be earning a bare minimum of 4.5% APY. If you’re not earning more than that, you’re denying yourself some automatic net worth growth. Also, you should find out if you’re eligible for a high-interest checking account, like the upcoming ING Electric Orange checking, which offers a 3.0% APY on your checking balance.

6. Start a portfolio
Once you’ve built up an emergency fund, you should consider starting an investment portfolio. Once you begin to accumulate a lot of money in savings, investing is the next logical step for helping your money grow.

7. Reinvest income from investments
Once you begin investing, you’ll find that you may receive income from these investments, such as dividends. Instead of pocketing that money, roll it back into the investment until you have a real reason to take it out. It’s just more net worth growth acceleration.

8. Invest all windfalls
If you suddenly get a windfall due to an unexpected gift or an inheritance, don’t think about buying a flat panel television or a swimming pool. Invest that money as soon as you can. You can start buying such perks when your net worth is growing at a rapid pace by itself. I like the campfire analogy: if you’re trying to start a campfire and someone hands you some wood, are you going to use it to build the fire or are you going to whittle yourself a new toy?

9. Buy only late model used cars
Late-model used cars, ones that just finished out their leases, are the best deal on an auto lot. Buy one and drive it until it’s about ready to fall apart, then trade it in for another one. But don’t forget the tenth suggestion…

10. Pay for things only in cash
If you can’t get your hands on the cash to buy something, wait until you can. This includes everything short of a new home, including automobiles. The only auto loan you should ever take out is your first one.

If you follow these rules, you’ll watch your net worth slowly begin to accelerate and take off like a jet going down the runway and lifting into the air.

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  1. Excellent post, I especially like the pay with only cash point. I have started doing this and it is amazing the money you save on unneccessary purchases.

  2. Dan says:

    Pretty good advice. One thing that often needs to be pointed out to people is that personal finance is about 80% personal and 20% finance. Math can’t dictate habits, so you need to let the habits dictate the math.

    For example. #1, Pay off all your debts starting with the high interest ones. I understand the mathmatical logic of knocking down the higher interest rates first, but it doesn’t necessarilly allow personal success early and often.

    I’d say Pay off all debts starting with the smallest. This gives you early success, and allows you to roll over the payment from the first debt into the next. Sure, you’ll be paying a little more interest, but as you move down the list, rolling each paid-off debt payment into the next debt, you’ll build a ton of personal satisfaction.

    And on #8, Invest all windfalls: add the personal touch: Invest all windfalls after you take your wife to dinner (it’ll go a long way, especially if she’s not a math geek like you or me)!

    Amen to buying used cars.

  3. I think people would do best with disassociating themselves with the personal aspect. Let math, not emotions, be your guide. If you are already calculating your net worth, it doesn’t matter if one loan is completely paid off or if one is 1/10 of the way done. Building the personal satisfaction should come from the month net worth calculation.

    If I’m offered 0% APR on a car loan, you better believe I’m not paying that off in cash. I’ll set up automated payments of whatever it needs to be, but I’m collecting the 4.5+% interest in and ING account.

  4. jeremy says:

    Yes, I really like the pay with cash suggestion.

    A nice feature of this is often instantly salesmen are hypnotized to close the deal. Their eyes get stuck on the money if you count it in front of them before offering. Understand you can manipulate salesmen far more effectively than they manipulate customers if you want to. People that have strong closing experience in retail, fundraising and such, can often negotiate large purchases so close to the margin lines that the merchant actually takes a loss on it (thinking it’ll be counterbalanced by future purchases) or earns practically no profit on it. This is, obviously, optimal for the purchasing power of the consumer. Let the businessman retire making profits on the person behind you in line.

    When negotiating for cashmere sweaters in Europe I proposed the merchant and I go into business together and I buy sweaters 10 at a time or better yet 100 at a time for sale in the US. What kind of a price could we get to? We went back and forth a bit and agreed on around half the retail price in his store. I told him I’d certainly keep it in mind but for the moment I’d just take 2. Guess what, half-price. Apparently I’m not the only one that’s ever thought of doing this.

    A friend of mine sells expensive imported italian furniture in the US. An executive of a large hotel approached her at the business and explained they were interested in 100 nightstands or perhaps 100 coffeetables, perhaps both. What kind of a price range would they be in, as obviously they didn’t want to pay retail. She and the owners of the furniture company figured they’d lucked out, after all, the hotel could have just bought the furniture directly from the italian manufacturer for the lowest possible price per item, right? So patting themselves on the back for their luck and with as much of an attempt to prevent blowing the deal, they offered a price just a few % points above their cost. The hotel executive said great, that’s just the range we were thinking about, of course I’d need one of each to take with me to the presentation where we decide if these are what we’re going to go with. They sold him those 2 pieces at the pro-rated cost of the order of 100. She asked me why I thought 2 weeks later she hadn’t heard from him and the sale on 100 hadn’t gone through. I felt it was obvious the night stand and coffee table were sitting in the executives home… at 55% of their retail price in the furniture store. Purchased practically at cost.

    You go into a TV store and say what’s the best price you can do on this after looking at sticker price, they’ll shave 2-5% anywhere, even major chain stores. Let’s say this tv costs x amount. And you say “how much less will you charge me if I pay in cash? I know if I put it on a credit card the merchant would pay up to 3% in fees, so we can start with that as a discount range…” I got to a discount of approx. 35% below bestbuy price, yes it was new, no it wasn’t a show model or factory 2nd.

    A nice way to buy a used car is to already know what you want and the fair price for it. when you see one and you know it’s at a fair price offer 10-15% less for it, offer at least a few K less. Tell them if they agree you’ll buy it today, paid in full in the next few hours. They’ll give you 12% off. You may have to be willing to walk away, come back 6 hours later, re-offer a few hundred more. If not, be prepared to walk away and come back the next day. But I think often the walk away gets you to an optimum price when used twice buying a used car.

    To the person in favor of 0% APR on a car loan, they only give those for new cars right? if so depreciation counterbalances gains.

  5. Robyn says:

    How does one pay off huge credit card debt of over 75K? What is your advice to get it paid down as quick as possible? After paying all bills, with the credit cards maxed out, all we are able to pay is the minimum , aprox 600/card which is almost 1/3 interest. Any suggestions?
    Thanks. Robyn

  6. rodgerlvu says:

    thanks. Excellent post, I especially like the pay with only cash point. I have started doing this and it is amazing the money you save on unneccessary purchases.

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